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Selling Options on Futures?
Started:July 19th, 2011 (06:16 PM) by ron99 Views / Replies:569,892 / 5,734
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Selling Options on Futures?

Old August 27th, 2015, 03:06 PM   #4891 (permalink)
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Here is a comment from a poster in a forum in a thread about Karen that was made Mar 17, 2015.


Quoting 
She's real and does around 30% annually (at least she did when I reviewed her offering documents last year).


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Old August 27th, 2015, 03:25 PM   #4892 (permalink)
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Old August 27th, 2015, 03:54 PM   #4893 (permalink)
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mu2pilot View Post
I wonder how Karen the Supertrader made out during the recent few days. Anyone heard? In the past, she sold 5 delta puts and risked 50% of her capital (aka IMx2). I know that they have been working on risk protection methods over the past year or 2. It would be interesting to hear if they managed to avoid a big loss.

I was under the impression she sold 2 delta puts.

regards

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Old August 27th, 2015, 03:58 PM   #4894 (permalink)
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I was under the impression she sold 2 delta puts.

regards

No, that was Ron's original method, selling 2 delta puts on different futures markets. Karen, at least in the TastyTrade videos, said she sold 5 delta puts and 10 delta calls because "the market crashes down faster than it does up".

Actually, it was more like 2 SD minus a certain # of points (for extra cushion) is how she first described it and it ended up being near a 5 delta (on the put side).

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Old August 27th, 2015, 04:38 PM   #4895 (permalink)
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^ What he said.

Also she doesn't use futures options as much and relies on her portfolio margin to sell the cash index. I think that should be less leverage than the futures. Can anyone confirm this? 3 delta 50-60 dte span margin is approximately 500, this should translate to 1000 margin for the $SPX equivalent to be on equal terms.

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Old August 27th, 2015, 04:51 PM   #4896 (permalink)
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Ron99, I have always had some questions about your strategy of selling naked ES puts. And now that you have finally had to exit at a loss, I think it is the right time to bring them up.

It appears that with each profitable trade, your account size has grown and your position size has grown. I am guessing that you had on a very large position of short Nov ES 1650 naked puts which you sold for 3.90.

After taking this loss, how long or how many trades, assuming you can/will trade the same amount of ES puts, will it take to recover what you lost earlier this week? In an earlier post someone asked a similar question and I believe you said it will take about 4 trades to recover the losses. I am guessing that is only if you trade the same number of contracts as you did when you took this loss.

Realistically for most traders, after taking a loss like this, their trading power will be severely limited. So I doubt they would be able to sell the same amount of ES puts as before.

How many successful ES naked put trades were you able to exit at 50% premium profit before finally taking this past weekís loss since you say that you are still profitable trading this way?

I have always heard people say that option selling is about a series of very small wins but when a loss does occur, it is huge and may wipe out all the profits and more from those previous small wins.

Letís just say that I stick to selling only 10 ES puts with a $20,000 account. I choose a strike with delta under 0.04 and premium of 4.00 and with around 90-110 days until expiration. After I get filled, I will enter a GTC order to buy back at half my entry thus locking in 50% of the premium as profit. I do this trade after trade after trade. Making about $1,000 per trade. Letís say I am successful for eighteen successive trades and I have a profit of $18,000.

Finally a week like this happens and my 3x IM is hit and I exit at a premium of 36.00 for a loss of $18,000 ($16,000 minus the $2,000 original premium credit) which wipes out most of the profits from my previous eighteen winning trades. Keep in mind that I did not increase position size and if I did increase position size which is highly likely due to account size growing and the complacency of consistent success from the previous eighteen trades, not only would I have given back all my profits, I would have taken a huge loss.

Psychologically and confidence wise this cannot be good now the markets have rallied and the premium on the position which you took the loss is back down to manageable levels, yet you exited at a big loss. I know I would be beyond frustrated that a blip forced me to give back months and maybe years of small profits just to see the premium deflate so quickly.

So Ron99 how will you recover your losses from this week as it seems your position size has grown into the thousands since you first started trading ES naked puts?

Your thoughts please...........

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Old August 27th, 2015, 05:32 PM   #4897 (permalink)
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^ What he said.

Also she doesn't use futures options as much and relies on her portfolio margin to sell the cash index. I think that should be less leverage than the futures. Can anyone confirm this? 3 delta 50-60 dte span margin is approximately 500, this should translate to 1000 margin for the $SPX equivalent to be on equal terms.

I've compared them in the past (there's actually a portfolio margin calculator online) and they were pretty close. Definitely not 2:1 difference. If anything portfolio margin offered slightly more leverage.

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Old August 27th, 2015, 06:44 PM   #4898 (permalink)
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I thought I'd share my analysis and opinion here regarding which /es put options behaves in what way.

Below is a screen shot of the current price which I took by the mid between big and ask price of each options with the days to expiration below each expiring month. (I have a DDE running in my excel quoting them real-time).

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After that, I took the price difference of each strike from one month (and weekly/EOM) to the next to see how much premium decayed between these dates. You can see below for results between each day.

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And then I calculated the following premium decay in percentage terms from the beginning for each option in the same period.

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What I have found and hypothesized is as follows.

In pure percentages terms of premium being decayed, it appears 50-60 DTE options that are FOTM decay the fastest. However, it also appears that these options hit their margin calls and bigger draw downs during times of turbulence.

Please note the above research did not include margin being utilized and I do not have direct access to span margin I can link to my excel to make further analysis at the moment. However, in my humble opinion, the 50-60 DTE options are at a sweet spot for bigger vega risk (per margin utilized) when things get worse quickly while it should offer the fastest decay the other way around.

The reason for this hypothesis is because this morning, I was able to sell a put 50 dte at approximately 3 delta for 3.40 at around 500 initial margin, which would give us a monthly ROI (to expiration) of 6.69% (with $5 round trip cost) according to IM x 3 rule. While a similar delta at 95 DTE gave me the same ROI number of 3-4%. (the DTE is almost 2x while premium received was around 4.2 which is only a 25% increase).

So my conclusion is, 50-60 DTE options carry more risk while the margin increase isn't big enough to reflect this. In order to make up for this difference, we should utilize less margin and vice-versa. However, if you are selling cash secured puts for theta decay, 50-60 dte options should be much more advantageous.

Thanks for reading.

J

The curve is convex for OTM and concave for FOTM. For best decay and least risk, sell 50-60 for OTM and hold till expiry,for FOTM sell 60-90 and close at 30.

The majority of the FOTM decay happens before 30 days because the probability of them expiring ITM as they approach day 30 becomes exponentially unlikely.

This is if delta price/vol doesn't change.

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Last edited by PeakGrowth; August 27th, 2015 at 07:03 PM. Reason: brain fart
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Old August 27th, 2015, 07:00 PM   #4899 (permalink)
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PeakGrowth View Post
The curve is convex for OTM and concave for FOTM. For best decay and least risk, sell 50-60 for OTM and hold till expiry,for FOTM sell 60-90 and close at 30.

The majority of the FOTM decay happens before 30 days because the probability of them expiring ITM as they approach day 30 becomes exponentially unlikely.

This is if delta doesn't change.

Did you mean if volatility doesn't change? Delta is going to change as you get closer to expiration.

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Old August 27th, 2015, 07:01 PM   #4900 (permalink)
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mu2pilot View Post
Did you mean if volatility doesn't change? Delta is going to change as you get closer to expiration.

Sorry I mean to say if price/vol doesn't change, my bad.

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